With the VAT reverse charge expected to be introduced next month, HMRC has decided to delay its introduction until October 2020, giving the construction industry one more year to prepare.
What is the VAT reverse charge for construction services?
In simple terms, the reverse charge now puts the VAT responsibility on the customer rather than the UK supplier for construction services.
If you’re a subcontractor for example, the VAT reverse charge means the company engaging you will be required to handle and pay VAT to HMRC.
The VAT reverse charge will come into action from 1st October 2020.
Why has the introduction of the VAT reverse charge been delayed?
The VAT domestic reverse charge was originally planned to come into action on 1st October 2019. It has now been delayed one year due to industry representatives expressing concerns on some businesses abilities to implement the changes. Furthermore, HMRC stated that “this will also avoid the changes coinciding with Brexit.”
Who does the VAT reverse charge apply to?
The VAT reverse charge is obligatory for UK companies providing construction services in the UK to VAT registered customers.
What does it mean?
If you are a contractor, it means you should correctly account for reverse charge VAT invoices as they will be your responsibility from October 2020
As always, we highly recommend checking the invoices you receive to make sure they are correct. This will avoid you paying too much or too little VAT. You should also consider the VAT rates; the reverse charge applies to standard and reduced rate supplies but will not apply to zero-rated supplies.
If you are a subcontractor, then the changes won’t affect you, as when issuing VAT invoices, you will be passing on the VAT charge as normal. However, given the changes mean subcontractors will no longer pay VAT on sales, your cash flow could be affected.
What construction services will the VAT reverse charge effect?
HMRC has detailed a full list of services:
Construction, alteration, repair, extension, demolition or dismantling of buildings or structures (whether permanent or not), including offshore installations
Construction, alteration, repair, extension or demolition of any works forming, or to form, part of the land, including (in particular) walls, roadworks, power-lines, electronic communications apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
Installation in any building or structure of systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection
Internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration
Painting or decorating the internal or external surfaces of any building or structure
What construction services are excluded from the VAT reverse charge?
HMRC has stated that “supplies of the following supplies are not covered by the domestic reverse charge if supplied on their own”:
Drilling for, or extraction of, oil or natural gas
Extraction (whether by underground or surface working) of minerals and tunnelling or boring, or construction of underground works, for this purpose
Manufacture of building or engineering components or equipment, materials, plant or machinery, or delivery of any of these things to site
Manufacture of components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or delivery of any of these things to site
The professional work of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape
The making, installation and repair of artistic works, being sculptures, murals and other works which are wholly artistic in nature
Signwriting and erecting, installing and repairing signboards and advertisements
The installation of seating, blinds and shutters
The installation of security systems, including burglar alarms, closed-circuit television and public address systems
How can you prepare for the VAT reverse charge?
Whether you are a contractor, agency or accountant, and have a tax-related query, or require advice, or indeed a solution to a problematic tax issue, contact Qdos to find out how we can help.
We cover hundreds of trades under our bespoke insurance policies. Further to preparing for the VAT reverse charge you should consider your insurance policies also.
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